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Billions in federal transportation funds riding on California's new pension law

Less than a year after California lawmakers mandated sweeping changes for state and local government pensions, federal officials are poised to cut off billions of dollars in transportation funding because of the new laws.

A series of decisions by the U.S. Department of Labor could begin Friday that would ultimately freeze more than 100 grants for projects statewide, including more than $60 million in already approved money for Sacramento area transit efforts.

"If this isn't resolved, eventually we're going to run out of money," said Mike Wiley, the Sacramento Regional Transit District's general manager and CEO.

In total, some $1.6 billion could dry up this year alone for everything from commuter rail expansion to bus maintenance.

In a copy of a recent letter to Gov. Jerry Brown and obtained by The Sacramento Bee, U.S. Labor Department Secretary Thomas E. Perez warned that California's new pension law likely runs afoul of a federal mass transit grant rule that requires transportation agencies to preserve their employees' collective representation rights.

The Labor Department must certify that a mass transit provider is following the rules as the final step in the federal grant process. If the department decertifies an agency, the federal money isn't released until the agency is recertified.

A California pension law that took effect Jan. 1 is testing the federal rule. Over union objections, the law hikes state, local and regional government employees' pension contributions and offers less generous retirement formulas for employees who join a public pension fund Jan. 1 and later.

Shortly after Brown signed the measure, several transit unions representing roughly 20,000 workers in California began filing federal transit grant objections, contending the pension benefit terms must be collectively bargained, not imposed.

That froze federal mass transit funding while the Labor Department considered the objections.

"My legal staff and I have reviewed this matter carefully," Morgenstern wrote Feb. 13, concluding the law "merely modifies" the retirement plans that government employers can offer and doesn't weaken collective bargaining.

The U.S. labor secretary plainly disagrees.

"We are concerned that (the pension law) diminishes both the substantive rights of transit employees under current collective bargaining agreements," Perez wrote Aug. 1 to Brown, "and narrows the future scope of collective bargaining over pensions. I write to urge California to act immediately to develop a solution to this issue."

The letter says a formal federal decision on funding will start Friday with the Los Angeles County Metropolitan Transportation Authority, which has $268 million at risk so far. Orange County's transit agency, which is next in the federal grant queue, would lose grant money next.

Sacramento's grants follow, with some $45 million for light-rail construction to Elk Grove at risk, plus another $13 million for facility and equipment maintenance. Another $60 million is in play for next year if the dispute drags on that long.

When asked about the federal warning, Brown spokesman Jim Evans emailed a quote to The Bee: "We appreciate the critical importance of federal transportation grants to California. The administration is working with our federal partners to reconcile state and federal law on public pensions and transit grant dollars."

Meanwhile, the Teamsters and two other unions have backed a measure by Assemblyman Luis Alejo, D-Watsonville, that would exclude 20,000 local and regional mass transit workers statewide from the pension-change law. That bill has been stuck in an Assembly committee since May.

Neither Alejo nor his spokeswoman could be reached for comment. Brown's spokesman declined to discuss the bill.

But in meetings with transit officials, the Brown administration has suggested some alternatives to keep the money flowing while unions, employers and the courts hash out the problem.

One plan would pass a law to exempt temporarily employees working for transit authorities so that the federal money spigot would again open while lawyers debated the question in court, said Wiley, the Sacramento regional transit chief.

Another idea would be to pass legislation temporarily excluding only those agencies that rely more heavily on federal funds. Others with more financial flexibility from alternate revenue streams, such as local taxes, would become test cases in court.

In the meantime, Wiley said Sacramento district officials have moved money around to cover some of the delayed federal funding. They also have a contingency plan if light-rail construction is affected. For now, bus and train schedules won't change.

But a dragged-out legislative solution or a lengthy court fight carries the risk that the federal dollars would be lost, not merely delayed.

"There are very real deadlines at the federal level for transit systems to spend their money," Wiley said. "If you don't spend your money ... they have some flexibility to shift those dollars elsewhere or trim them from the program."

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